How to Select the Best Credit Card to Rebuild Your Credit
If you’re looking to get a credit card to rebuild your credit, a good secured credit card may serve you better than an unsecured card. That said, finding a good secured credit card is getting a wee bit challenging. Many creditors have done away with secured cards, or have created secured cards that actually hurt you financially. Secured credit cards are “secured” by a deposit you make, which then determines the amount of credit the creditor extends.
Too much available credit after bankruptcy or other debt problems might not be a wise idea. The debt can creep up on you faster than you know. That’s why I like secured credit cards. If you find yourself in trouble down the road, you can get back on track quickly. With one simple phone call and a follow-up letter, you can reduce your credit card debt by the amount of your security deposit. Ask to have the account closed and use the security deposit to pay down or pay off the balance you owe on the card.
Banks are always merging, and credit card offers are always changing. That’s why I want to make sure you have all the information you need to determine whether or not a particular secured credit card is helping you financially. Start by using the grace period, interest rate and the way your payments are reported (secured or unsecured), as your first three screening tools. Then check with your bank or credit union to see if they offer a secured credit card that meets the above criteria. If they don’t, then look at the secured credit cards that are currently being offered. I recommend going on-line to www.bankrate.com. They have always been ahead of the crowd when it comes to the most updated information, even back when they were AOL Moneywhiz and I was one of their financial experts!
1. The issuing bank reports your payment history every month to at least the three major credit bureaus. If your credit card payments aren’t reported regularly to Equifax, Experian, TransUnion (and hopefully Innovis), then you’re wasting your time with this credit card. When you’re ready to take out a car loan or a mortgage, you want your good payment history to shine through. The only exception I make is for secured credit cards that are issued by your credit union. If you’re planning on financing your car and home through the credit union, they will see your good payment history from your credit card account, regardless of whether or not that history is reported to the credit bureaus.
2. The issuing bank must keep your secured status confidential if you’re getting a secured credit card. Only you and the bank should know that your credit card is secured by your savings, not the credit bureaus. A secured credit card can only help you re-establish credit if the credit bureau does not know your savings act as collateral for your credit. When a bank lists a credit card as secured on your credit report, other creditors immediately know the card is not really issued as a credit – it’s secured by your collateral, your security deposit. This won’t help you build a positive credit history, so make sure the secured card you selected is NOT listed as secured on your credit reports. Again, if you’re going to be applying for all your credit through your credit union, it matters less how they report your secured credit card.
These two conditions won’t jump out at you on all applications, because they may not be there. Banks aren’t required to tell you, so make sure you ask. In addition, banks often change their policies. The 4th Edition of Bounce Back From Bankruptcy contains the complete list of banks and credit unions offering cards I recommend. Go slowly as you rebuild your credit and the minute you find yourself carrying a balance on a credit card, stop using it. If you need help working out a financial strategy to get back on track, call us for a consultation or see a credit counselor immediately so you stop the train before it derails again!